THE Zimbabwe dollar, one of the weakest currencies in the world currently on a tailspin, dramatically lost 95% of its value since the beginning of December last year, the International Monetary Fund (IMF) says.
BERNARD MPOFU
An IMF staff team led by Wojciech Maliszewski visited Harare from 31 January to 14 February 2024 to discuss the Zimbabwean government’s request for a Staff-Monitored Programme (SMP) and commence the 2024 Article IV Consultation.
The IMF staff held meetings with Finance minister Mthuli Ncube, his deputy David Mnangagwa, Reserve Bank of Zimbabwe governor John Mangudya, other senior government and Reserve Bank of Zimbabwe (RBZ) officials, the private sector, civil society organisations, and Zimbabwe’s development partners.
The mission’s engagements covered policies to restore macro-economic stability and improve growth prospects, focusing on finalising the transfer of the RBZ’s quasi-fiscal operations to the Treasury and addressing other sources of fiscal pressures.
It also covered liberalising the foreign exchange market and establishing an effective framework for exchange rate and monetary policies, and progressing on reforms to improve economic governance.
In a Press release after the meetings, the IMF team said while Zimbabwe continues to show resilience in the face of currency instability and high inflation, the Zimdollar was now badly battered by depreciation.
“Local-currency (ZWL) instability intensified: the official exchange rate has depreciated by about 95 percent since the beginning of December 2023; the gap to the parallel market rate remains wide (above 30 percent); and ZWL inflation is still very high,” it said.
“This instability weighs on sentiment, while exchange rate restrictions (prescribing retailers to use the official ZWL exchange rate with up to a 10 percent margin — inflating US dollar prices) continue to be a burden on the formal sector.
“They promote informality, which erodes the tax base and undermines longer-term growth prospects. Risks remain skewed to the downside, and the outlook will crucially depend on progress toward macroeconomic stabilisation and transformational structural reforms.”
Currency volatility and high inflation were wreaking havoc with the economy, it said. The exchange rate is now US$1: ZW$12 500-ZW$18 500 depending on the transaction.
The official exchange rate is US$1: ZW$9 800. Officially, inflation increased to 34.8% in January from 26.50% in December of 2023. Inflation averaged 42.6% from 2009 until 2024, reaching an all-time high of 785.6% in May of 2020 and a record low of -7.5% in December of 2009.
However, independent estimates say inflation is about 1 200%.
At the conclusion of the IMF mission, Maliszewski’s statement said: “Economic activity in Zimbabwe continues to show resilience in the face of currency instability and high inflation. GDP growth is estimated at 5.3 percent in 2023, on the back of an expansion in agriculture and mining, and — buoyed by related foreign currency inflows and by remittances — in the highly-dollarised domestic trade and services.
“Growth is expected to decelerate to about 3¼ percent in 2024, partly reflecting the impact of a drought on agriculture production and lower commodity prices.
“These factors are also expected to reduce foreign currency inflows, but remittances will likely remain strong, and the current account is projected to be in small surplus. This should support liquidity in the dollarised part of the economy, sustaining growth in domestic trade, services, and construction.
“However, local-currency (ZWL) instability intensified: the official exchange rate has depreciated by about 95 percent since the beginning of December 2023; the gap to the parallel market rate remains wide (above 30 percent); and ZWL inflation is still very high. This instability weighs on sentiment, while exchange rate restrictions (prescribing retailers to use the official ZWL exchange rate with up to a 10 percent margin — inflating US dollar prices) continue to be a burden on the formal sector.
“They promote informality, which erodes the tax base and undermines longer-term growth prospects. Risks remain skewed to the downside, and the outlook will crucially depend on progress toward macroeconomic stabilisation and transformational structural reforms.
“The authorities have requested a new SMP to support their stabilisation efforts and reengagement with the international community through building a track record of sound economic policies. The mission was a step in the preparations for an SMP and initiated Article IV consultations. Discussions covered policies to restore macroeconomic stability and improve growth prospects, focusing on addressing the sources of fiscal pressures including quasi-fiscal operations (QFOs) of RBZ; liberalising the foreign exchange market and establishing an effective framework for exchange rate and monetary policies; and progressing on reforms to improve economic governance and reduce corruption vulnerabilities.”
